Amendments introduced into the Tax Code of Ukraine by the Law of Ukraine 71-VIII as of December 28, 2014 increased the marginal measures of the land tax rates. If the previously effective version of the Code established a fixed tax rate in the amount of 1% of the normative monetary value, then, according to the new amendments the land tax rate may constitute up to 3% (except for the agricultural cultivated lands and common-use lands). The tax rate shall be established in the amount not more than 12% of the normative monetary value of the land plots permanently used by the subjects of economic activities (except for the state and communal property).
Marginal measure of the land tax rates related to the agricultural cultivated lands has also been substantially increased. If earlier such amount was fixed and established in the amount of (a) 0.1% of the land normative monetary value – for tillage, hayfields and grasslands, and (b) 0.03% of the land normative monetary value – for perennial crops and according to the amendments the amount of the land tax applied to the agricultural cultivated lands may constitute up to 1% of their normative monetary value.
A particular amount of the land tax, the same as the concessions applied to its settlement, is established by the decision of a corresponding local council. Pursuant to p. 12.3.4 of the Tax Code of Ukraine (hereinafter the “Tax Code”) such decision of the local council must be officially and publicly declared prior to 15-th of July of the year preceding the budget year in which application of local taxes and fees (or amendments) is planned. Otherwise, the provisions of corresponding decisions are applied not earlier than the beginning of the budget period following the target period. Such approach obliges local councils to make decisions on establishment of rates and concessions on settlement of the land tax annually.
For example, the amount of the tax rate in Kyiv is established by the decision of Kyiv City Council “On establishment of local taxes and fees in Kyiv” No. 242/5629 as of June 23, 2011 (in the version of the decision of Kyiv City Council as of January 28, 2015) (hereinafter – the “Decision”). According to the said Decision the land tax in Kyiv in 2016 is established in the amount of 1% of normative monetary value of the land plots. The rate of tax applied to land plots permanently used by legal entities (except for land plots of state and communal property), is established in the amount of 3% of their normative monetary value.
If the local authorities or council of united territorial communities, established under the law and under the perspective plan of formation of territorial communities, have not made a decision on establishment of corresponding local taxes and fees, such taxes (prior to making a decision) shall be accrued based on the provisions of the Tax Code with application of rates effective prior to December 31 of the year preceding the budget period in which application of land fees is planned.
So far it is difficult to judge how such approach will be applied on practice. However, it seems that local authorities may be interested in the increase of the land tax rates with the aim of pushing the amount of their local budgets up. In addition there may be instances of an individual change of land tax rates which complexify planning of business process.
It also needs to be noted that according to the new amendments the local councils may establish the land tax rates in the amount of up to 12% of normative monetary value of land in relation to the land plots permanently used by enterprises of private ownership form. Should local councils take advantage of such a possibility and considerably increase the amount of the land tax rate it may bring the result when many enterprises, having land plots in the use (for example, privatized enterprises), will have to wave their right to permanent use of the land plots or will essentially re-consider formation of profits from their use.
Pursuant to p. 288.5 of the Tax Code of Ukraine the amount of the lease payment the land plot is established in the lease agreement and, at the same time, the annual rate of payment may not be less than 3% and not more that 12% of normative monetary value of land. The only legislatively established exception is the event of sale of the right of lease by tender when the amount of lease payment may exceed legislatively established 12% limitation. Similar provisions are contained in the aforementioned Decision as well.
Pursuant to Article 289 of the Tax Code of Ukraine normative monetary value of lands is subject to indexation. According to the amendments to the Tax Code changed also was the formula of establishment of coefficient of indexation of normative estimated monetary value of land which will result in the increase of the said coefficient. Under the information of the State Geological Cadastre the coefficient of indexation of normative estimated monetary value of lands of population centers and other lands of non-agricultural designation as of January 01, 2016 constitutes 1.433. At the same time provisions of paragraph 6 Sub-clause 6 of the Transition Provisions of the Tax Code of Ukraine establish that the index of the consumer prices in 2015, which is used for establishment of the coefficient of indexation of estimated monetary value of agricultural lands (tillage, perennial plantations, hayfields, grasslands and fallows) shall be used with the value of 120%, i.e. the indexation coefficient for such lands constitutes 1.2.
The whole complex of the mentioned amendments means considerable increase of the land fees. In this connection and in order to, at least for a little, decrease the tax burden onto the payees of the land tax and payments on lease of lands a Draft law on introduction of moratorium onto indexation of normative estimated monetary value of land until December 31, 2018 was introduced for consideration of Verkhovna Rada of Ukraine. However, as of today this Law has not been passed yet.